http://money.msn.com/business-news/a...19&id=14547086

After a prolonged battle to push the EU budget up by 5%, the EU has settled on a 2% increase for 2012. However, that will not allow it to meet existing commitments.

At this stage, the ability of a number of EU states to meet their contributions commitments must surely be questioned. How much longer will the EU have an AAA rating ?

BRUSSELS (Reuters) - European Union negotiators agreed to a two percent rise in the bloc's budget for next year to 129 billion euros ($174 billion), following more than fifteen hours of talks which ended in the early hours of Saturday morning.

The deal was seen as a victory for cash-strapped capitals grappling with Europe's debt crisis, which had opposed demands by EU lawmakers to increase the budget by more than 5 percent.

More than two thirds of the EU budget is spent on subsidies for farmers and regional aid funds, which finance road construction, environmental clean-ups and other projects.

But some EU officials said limiting the budget rise to forecast inflation for next year could leave the bloc unable to pay its bills and threaten the EU budget's AAA credit rating.


"This is clearly an austerity budget, as most member states are in the midst of a serious financial crisis," said EU Budget Commissioner Janusz Lewandowski, who had originally proposed a five percent rise in spending in 2012.

"There is now a serious risk that the European Commission will run out of funds in the course of next year, and will therefore not be able to honor all its financial obligations toward beneficiaries of EU funds," he said.

That is because while agreeing to limit their contributions to the EU budget to 129 billion euros next year, governments gave in to the European Parliament's demands to allow EU spending commitments next year to go up to 147 billion euros.

"Today's commitments become tomorrow's payments, so they are playing a very dangerous game indeed," said one EU official.